It’s Doom I tell you

European banks have cut back on their lending to each other - so no trust there -and are now dependent on some $900 billion in emergency financing from the European Central Bank for cash flow.
European banks’ losses from the last financial crisis will hit $1.3 trillion by the end of this year, according to the International Monetary Fund’s latest forecast—35 percent more than the USA. total. While Europe’s banks were just as aggressive as America’s in gambling on toxic debt, European governments have hardly done anything to clean up the mess.
European lenders are increasingly nervous about the money they’ve ploughed into over indebted countries in the EEC. Together, Europe’s banks have funnelled $2.5 trillion into the five shakiest euro-zone economies: Portugal, Ireland, Greece and Spain (the PIGS).
French banks have been the most reckless, increasing their lending to Greece by 23 percent, to Spain by 11 percent, and to Portugal by 26 percent since the start of the financial crisis. Meanwhile, the ECB rated Greek and other troubled bonds as “risk free” and provided banks with cheap cash to buy them, encouraging subprime countries to borrow heavily at artificially low interest rates.
After the 2008 financial crisis, U.S. and British regulators ran public “stress tests” to separate good banks from bad ones, and then forced unviable ones to restructure and recapitalize. As a result confidence in the functioning of banks has largely returned. In Europe, Bank stress testing is being performed behind closed doors, results are expected late July, but not the criteria used. Because of this no one knows the true health of Europe’s banks and the crisis festers.
Whether Europe’s banking problems will now turn into a full-fledged economic crisis depends on whether the Europeans finally get serious about cleaning up their banks. Spain has begun to deal with its troubled cajas—local mortgage banks that bet the house on the country’s now collapsed real-estate boom. France, Germany, and Spain now say they will allow stress tests of some of their banks. However, they have not agreed on which banks will be included, how tough the tests will be, or whether they’ll be made public. Nor have regulators said what will happen with the banks that fail. Few critics now trust the Europeans to resolve their problems.
Already, jitters over bad debt in Europe are affecting world economic. If EEC countries don’t come to terms with their own financial problems soon, the world may have another full-blown banking crisis and Europe is to blame. The euro will collapse, Greece will default, followed by Spain and maybe all the PIGS.
Its all doom, DOOM.